Ireland's Property Refinancing Shortfall Makes Market Vulnerable, DTZ Says

Ireland is the world’s most vulnerable commercial real-estate market because it faces the biggest gap in funding relative to its size for refinancing debt, DTZ Holdings Plc said.

The $6.5 billion shortfall for debt coming due through 2013 is equivalent to 16 percent of the value of Ireland’s commercial real estate investment market, according to estimates released today by the London-based broker. On a proportional basis, the country is followed by Hungary, Spain, the U.K. and Japan.

Ireland this week became the second euro member after Greece to seek a bailout from the European Union and International Monetary Fund. Europe overall accounts for 51 percent of the projected $245 billion global debt-funding gap through 2013, DTZ said. That reflects its dependence on short- term bank lending and the number of loans in breach of their terms or at risk of default because of the slide in real-estate values since 2007.

The credit shortfall is “the biggest challenge to many international property markets,” DTZ said in the report, adding that a lack of debt financing at maturity will probably trigger defaults.

Many Irish property loans are under water after what London-based Investment Property Databank Ltd. estimates was a 60 percent slump in the values of shops, offices and warehouses in the three years through September. Ireland’s economy more than doubled in the decade ending in 2006. The bursting of the real-estate bubble plunged the country into a recession and brought its banks close to collapse.

Ireland’s National Asset Management Agency aims to have acquired property loans with a face value of 73 billion euros ($98 billion) by the end of 2010 from the five Irish lenders it was set up to assist, NAMA Chairman Frank Daly said Nov. 18.

‘Bad Bank’

DTZ expects NAMA, a government agency created last year as a so-called bad bank to buy lenders’ risky property loans at a discount, to conduct “an orderly disposals process” starting in 2011.

Governments, banks and borrowers in Europe so far have found ways to address the deficit, with most banks choosing to extend loans and change their terms rather than foreclose, said Hans Vrensen, the broker’s global head of research.

“Although banks and borrowers have not been forced to seek more dramatic solutions to the debt-funding gap, a number of imminent changes look set to increase the pressure,” including higher interest rates, reduced government debt and cutbacks in banks’ property-loan books, Vrensen said in the report.

Hungary has a debt-funding shortfall of $2 billion, equivalent to 10 percent of its commercial property investment market, the DTZ report showed. The U.K.’s $54 billion and Spain’s $33 billion gap are equivalent to 6 percent of their investment markets.

Japan has the largest shortfall in value terms, at $70 billion, DTZ estimates. The U.S.’s $49 billion amounts to 1 percent of its investment market.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net

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